Yangmou Of CITIC Securities: 28 Billion Share Allotment Plan Reveals New Trend, 5 Billion Invested In Wealth Management And Derivatives

CITIC Securities's 28 billion share allotment plan will be revised again.

On August 16, CITIC Securities issued four announcements in succession to revise the company's stock allotment plan for public offering of securities, and at the same time answered the CSRC's feedback on the examination of the company's rationing projects.

In contrast, the revised plan for allotment of shares of CITIC Securities specifically clarifies the specific situation of "increasing investment in subsidiaries" in the raised funds, and plans to use no more than 5 billion yuan to increase the investment of CITIC asset management and CITIC futures.

On August 16, CITIC Securities issued four announcements in succession to revise the company's stock allotment plan for public offering of securities, and at the same time answered the CSRC's feedback on the examination of the company's rationing projects. Visual China

5 billion rights issue funds invested in asset management and futures subsidiaries

According to public information, CITIC Securities wholly owns CITIC Securities International Co., Ltd., Jinshi Investment Co., Ltd., CITIC Securities Investment Co., Ltd., CITIC Futures Co., Ltd., CITIC Securities (Shandong) Co., Ltd., and CITIC Securities South China Co., Ltd., and holds the shares of Huaxia Fund Management Co., Ltd, It is also preparing to set up CITIC Securities Asset Management Co., Ltd., a wholly-owned asset management subsidiary.

In the 28 billion share allotment plan announced at the beginning of February this year, CITIC Securities said it planned to raise no more than 5 billion yuan to increase investment in its subsidiaries. But for the specific investment direction is not clear, only said "to CITIC Securities International and other subsidiaries to provide financial support.".

The revised plan for allotment of shares indicates that the 5 billion additional raised funds for subsidiaries will be mainly invested in CITIC asset management and CITIC futures.

In this regard, some non bank analysts of small and medium-sized securities companies believe that CITIC Securities focuses on providing financial support to the two subsidiaries of CITIC asset management and CITIC futures, reflecting the company's emphasis on wealth management business and OTC derivatives business.

In recent years, there are many cases in which securities companies set up asset management companies and develop wealth management business. Xia Changsheng, chief non bank analyst of Tianfeng securities, said that in 2020, the development of securities companies' large asset management business, such as public funds, private equity funds and securities companies' asset management, has become the growth point of securities companies' performance.

On February 21 this year, CITIC Securities also announced its intention to set up a wholly-owned subsidiary. The board of directors of the company agrees to invest no more than 3 billion yuan. After the establishment of the subsidiary in the future, it will inherit the securities asset management business of CITIC Securities, and will apply for a public offering license in due course.

"Asset management business is the entrusted asset management business. There are certain conflicts of interest between the asset management business and the investment banking and sales business of the parent company. Therefore, the independent subsidiary established by asset management is generally encouraged to operate independently to avoid conflict of interest with the parent company. Another independent subsidiary established by asset management also competes with the fund company in similar governance structure." In the interview, a person in charge of asset management business of small and medium-sized securities companies said that it was the general trend for securities companies to set up asset management companies.

In the view of Wang Mang, head of the private wealth headquarters of Hengtai securities, in a certain sense, wealth management can be understood as the dimension reduction of asset management. In other words, asset management and wealth management are both buyer's business, but in the closed-loop link, the path of asset management is shorter, and its experience can be used for reference by wealth management.

In addition to the transformation of wealth management business, derivatives business outside the securities market is also one of the hottest businesses in the industry.

According to the data of off market derivatives business in June released by the Securities Industry Association, after two consecutive months of decline in the newly added scale, the new scale of income swap in June reached 379.5 billion yuan, up 34.2% month on month, a record high, driving the new scale of OTC derivatives in the month to a record high. The new scale of OTC derivatives in the month reached 660.1 billion yuan, up 16.5% month on month.

With the increasing effect of OTC derivatives business on the performance of securities business, OTC derivatives have become the focus of securities business development. With the continuous expansion of OTC option dealer list, the market competition is increasingly fierce. In addition, some small and medium-sized securities companies adopt relatively radical business strategies to seize market share, which makes the concentration of OTC derivatives industry decrease.

"Most domestic futures companies are still engaged in over-the-counter derivatives business of commodities, but in the OTC option market, they can really cooperate with the OTC derivatives business of securities companies." A senior executive of Beijing securities brokerage system futures company pointed out that at present, the futures subsidiaries of Galaxy Securities and Huatai Securities are cooperating with the parent company of securities companies in OTC derivatives business, and CITIC Securities may have such considerations in increasing its investment in futures subsidiaries.

28 billion rights issue forced 6.5 billion accrued loss details

At the same time, CITIC Securities also responded to regulatory inquiries on the company's stock allotment plan. Among them, CITIC Securities in 2020 a huge amount of withdrawal was once again raised by the regulatory inquiry.

As early as October 30, 2020, CITIC Securities issued an announcement on the provision for asset impairment. It plans to draw a total of 5.027 billion yuan of assets impairment reserves, an increase of 593.84% over the same period of last year, exceeding 10% of the company's audited net profit in 2019, reducing the net profit by 3.772 billion yuan. By the end of 2020, the provision of credit impairment of CITIC Securities increased by 1.5 billion yuan to 6.581 billion yuan, an increase of 247.89% year-on-year.

In this regard, CITIC Securities had only briefly said that the huge amount of accrued losses was mainly due to the increase of credit impairment losses due to the purchase of resale financial assets and financing funds. In the face of regulatory inquiries, CITIC Securities's response this time is more detailed.

Among them, as for the balance of provision for impairment of financial assets for resale, CITIC Securities said that as of December 31, 2020, the balance of provision for impairment of financial assets for resale by the company was 8.039 billion yuan, an increase of 163.93% compared with the end of 2019. The main reason is that the credit risk of some projects of the company's stock pledge type repurchase increased significantly due to the impact of the new crown pneumonia epidemic and the fluctuation of the capital market, The proportion of maintaining guarantee decreased significantly and the default items increased.

Similarly, under the influence of the new crown pneumonia epidemic and capital market volatility, CITIC Securities said that the credit risk of some projects of the company's financing business had deteriorated significantly, resulting in the balance of the provision for impairment of financing funds in 2020 to be 1.534 billion yuan, an increase of 98.52% year-on-year.

In addition, in 2020, the balance of the provision for impairment of securities provided by CITIC Securities also increased significantly, reaching 100 million yuan, compared with the balance of 2055400 yuan in 2019. This large increase is closely related to the development of the company's two financing businesses in 2020. According to the data, the scale of securities provided by CITIC Securities increased from 673 million yuan in 2019 to 31.131 billion yuan in 2020. In this regard, the company said that "there is no default in this part of the financing securities". The other debt investment impairment reserves, receivables and other receivables accounted for a relatively small proportion.

Full subscription of major shareholders escorts rights issue

In fact, the 28 billion rights issue of CITIC Securities has attracted many attention. As the allotment of shares is an act of financing for the old shareholders, for the investors holding CITIC Securities, the allotment of shares is tantamount to forcing them to take out the real gold and silver. If they do not participate in the allotment, their rights and interests will be diluted. As a result, CITIC Securities 28 billion shares in the market has aroused great repercussions.

On March 1, on the first trading day after the announcement of the allotment plan, the stock price of CITIC Securities, which had been affected by market fluctuations for 12 consecutive times, plummeted by 5.98% on the same day. From a longer perspective, since citic securities issued the stock allotment plan, the company's share price has been fluctuating in the low range. By the end of August 17, the company's share price had fallen by 12.25% in more than five months.

In order to save the depressed share price, in June this year, China CITIC Co., Ltd., the largest shareholder of CITIC Securities, promised to fully subscribe for the available shares determined by the company's share allotment plan in cash. Previously, China CITIC Co., Ltd. had increased its holdings of 156 million H shares in the company through centralized bidding.

In addition, on August 5, Guangzhou Yuexiu Financial Holding Group Co., Ltd., the second largest shareholder of CITIC Securities, also issued a notice on its plan to increase its holdings of CITIC Securities, saying that it would spend 2.3 billion Hong Kong dollars or equivalent RMB to increase its holdings of CITIC Securities, which is also the second time that Yuexiu Financial Holdings increased its holdings of CITIC Securities this year.

In the eyes of the securities industry in Beijing, shareholders have repeatedly increased their holdings, on the one hand, in order to maintain the continuous low share price of CITIC Securities, on the other hand, it is also a round of investment to take advantage of the low share price, which can be understood as a disguised share repurchase.